The best home loan rates are typically offered to people with credit scores over 740, according to Fannie Mae. However, some loan programs have lower credit score requirements.
Occupancy type refers to what you’re using the home for — a primary residence, a second home or an investment property. Rates are the lowest for a home you plan to live in as your primary residence, because investors find most homeowners take extra measures to stay current on a mortgage tied to the roof over their head. If hard financial times hit, a second home or investment property mortgage may not be a high priority, and lenders charge a higher rate because of that risk.
Multi-unit properties and manufactured homes come with higher interest rates than single-family homes because lenders consider them riskier. For example, the payment on a multi-unit property might become hard to make if tenants suddenly move out. Meanwhile, lenders tend to view manufactured homes as a bigger risk than site-built homes because they don’t meet the same stringent property standards.
Home loan rates also depend on the type of loan you choose. While some shorter-term loans come with lower interest rates because you’re repaying the loan off more quickly, you must be able to afford the higher monthly payments.
A fixed-rate mortgage offers a stable monthly payment for the life of the loan. While 30-year mortgage rates offer the lowest monthly payment, you’ll pay more in total interest over the life of the loan. That’s compared to a shorter, fixed-rate term, such as a 15-year fixed mortgage, that features a lower rate but higher monthly payment.
The rate on an ARM is lower for a temporary period of 1 month to 10 years, but can go up or down once the initial fixed-rate period ends. An ARM is a good option for people who plan to move before the payment adjusts.
Lenders also consider how much you are borrowing compared to your home’s value, a calculation known as “loan-to-value ratio” (LTV). The less you put down, the more risk lenders face if you default, so they charge a higher interest rate to mitigate potential losses. Below is the standard minimum down payment for the most common loan programs.
|Minimum down payment by home loan type
|Type of loan
||Minimum down payment
||3.5% (580+ score)
10% (500 to 579 score)